aau trading standards: the latvian approach ilze prūse head of the pilot projects implementation...
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AAU trading standards: the Latvian Approach
Ilze PrūseHead of the Pilot Projects Implementation Division of the Climate and Renewable Energy Department
Ministry of the Environment, Republic of Latvia
Introduction
Latvia intends to sell 8 – 10 million of its Assigned Amount Units (AAUs) through pilot transaction in 2008.
The Ministry of the Environment has started negotiations with a limited number of reputable buyers with the intention to sign the pilot forward AAUs sale by June 2008 to gain experience and establish transaction standards for future deals.
Latvia’s participation in IET under Article 17 of the Kyoto Market position of Latvia Legal framework and earmarking of revenues from AAU
sale GIS fund structure and institutional arrangements Environmental integrity – monitoring, auditing and
reporting of greening results Indicative greening programmes Conslusions
Main points of presentation
Current state of affairs
Eligibility
Cabinet of Minister decision on April 12, 2006 of participation in IET under Article 17 of the Kyoto protocol
Earmarking 40 million of AAUs to be potentially available during the first commitment period
Mandate to Ministry of the Environment to work out legal, institutional system of IET by May 2008.
Implementation of the Kyoto Protocol by Latvia
Reserve for JI projects
Decision about strategic allocation of AAU assets
1990 1995 2000 2005 2008 2010 2012 2015
Mln
ton
CO
2E
Kyoto targetKyoto target
Surplus AAUsSurplus AAUs
(potentially (potentially tradable)tradable)
Reserve
Mandatory set-Mandatory set-asides (non asides (non
tradabletradable
Kyoto target
Buyer country
Purchase of ERUs
Domestic actions
Actual Actual emissionsemissions
Purchase of AAUs
Host country
Actual emissions
Actual emissions
Traded: Green
Investment Scheme
Compliance(Including
commitment period reserve)
Latvia can be a fast track provider of credibly greened AAUs with low risk and low transaction costs
Comparative strengths of Latvia: Robust surplus estimates Advanced in compliance with Kyoto eligibility criteria Low reputational risk Solid legal background Strong political commitment to efficient, transparent and
accountable GIS Efficient institutions of public and private sector Terms tailored to buyer expectations
Market position of Latvia (1)
Market position of Latvia (2)
Comparative weaknesses of Latvia:
Relatively small size of tradeable headroom
Limited opportunities for greening with direct reductions of GHG
Key elements of the Law (1) Ownership of AAUs Authorisation to the Cabinet of Ministers to make
decisions on each sale of AAUs, including the price and specific conditions
Authorisation to the Ministry of Environment and Ministry of Finance to prepare the sale of AAUs, including Participation in negotiations Drafting of an AAU Purchase Agreement
Authorisation to the Minister of Environment to sign the AAU Purchase Agreement after the approval of the Cabinet of Ministers is received
Key elements of the Law (2) Principles for using the revenues from the sale of AAUs,
including a clear provision stating that all income from the sale of AAUs shall be earmarked for “greening” projects
Special budgetary arrangement Money from the sale of AAUs is transferred to income
budgetary account in State Treasury Disbursements are organised under the budget
programme “Climate change financial instrument” In annual budget the financing for the Climate Change
financial instrument is ensured in amount of received and unused proceeds from AAU sales in previous years (carry-over provision)
Key elements of the Law (3) Institutional set up for managing GIS fund
Principles for environmental and financial monitoring, and reporting
Provisions for supervisory function performed by the Ministry of the Environment on behalf of the Government
Provisions for transparancy and accountability to public ensured by Advisory Council (representation by relevant stakeholders, including state institutions, non-governmental organisations and buyers)
Delegation to the Cabinet of Ministers to pass secondary legislation on the implementation of IET (establishing a ‘green investment scheme’)
Implementation model
Latvia will propose a programmatic model for the GIS. Most GIS programs will consist of a large number of
small projects. Therefore Latvia would propose to buyers “wholesale”
greening programs backed by a transparent, accountable and efficient national mechanism to “retail” AAUs revenues to multiple project owners.
Latvia can offer robust GIS implemented by competent national institutions that require only minor and targeted institutional strengthening.
Contract and Payment Structure
GIS Fund Manager
Project Beneficiary
Ministry of the Environment
CommercialBanks
Managementcontract
Loan
A
gree
men
t
Financingagreement
Legal agreement
Payment flow
Instruction on Release of Payment
Performance-based grants paid to projects upon delivery of verified milestones and results
Servicepayment
State treasury(budget income
account)
Budgetary programme
Climate change financial instrument
Buyer(AAU PA conditions)
Monitoring will be undertaken in accordance with relevant standards under the International rules and GIS rules and regulations pursuant to the Monitoring principles
Monitoring principles (applied annually):
(1) financial audit
(2) procedural conformity of GIS
(3) assessment of greening results
Report to the Government by April 1 every year, to buyers by June 1.
Environmental integrity – monitoring, auditing and reporting
Use of revenues (“greening”)
The Latvian government will ensure that every AAU sold will be used for “greening” purposes which means:
increase of renewable energy use improvement of energy efficiency application of innovative low carbon technologies capacity building for climate change policy design an
implementation
Sectoral breakdown of greenhouse gas emission sources in Latvia in 2004
Transport27%
Energy 46%
Industrial Processes
2%
Solvent and Other Product Use
1%
Agriculture17%
Waste 7%
EU ETS opertaors represent 27% of total emissions
Climate and energy indicators, Latvia
0.5
1.0
1.5
2.0
2.5
1990 1992 1994 1996 1998 2000 2002 2004 2006
IKP / GDP
Kopējā primāro energoresursu piegāde / TPES
Bruto elektroenerģijas patēriņš / Gross Electricity Consumption
SEG emisijas / GHG emissions
Avots: LIAA
Energy intensity (2005)
2.0
1.8
1.5
1.3
1.0
0.8
0.5
0.3
0.0
0.3
0.5
0.8
1.0
1.3
DKIEGBITAT
GR
DE
SE
FR
OE
CDNL
LU
ES
BE
PT
CY
MTFI
SI
La
tvijaHU
PL
LT
EE
CZ
SK
RO
BG
KPEP/IKP / TPES/GDP - 2005, (toe/000 $2000)
Elektroenerģijas patēriņš* / IKP /Electricity consumption* / GDP - 2005, (kWh/$2000)
EU-27
EU-27
Source: IEA
0.1
1.0
10.0
100.0
SE
FR
DK
GB IE AT IT FI
DE
BE
NL
OE
CD LU ES
GR
PT
Latv
ija CY SI
MT LT HU PL
SK
CZ
RO
EE
BG
CO2/Iedzīvotāju / CO2/Pop, 2005 (tCO2/capita)
CO2/KPEP / CO2/TPES, 2005 (tCO2/toe)
CO2/IKP / CO2/GDP, 2005 (kgCO2/2000$)
EU-27
EU-27
EU-27
Source: IEA
Energy supply-side management Promotion of biomass use including CHP plants Biogas recovery and use Solar heat, geothermal, small hydropower plants
Energy demand-side management Improved energy efficiency in buildings Efficient public lighting Heat distribution in DH systems Industrial power intensity
Integrated projects: Heat production – distribution – final use
Indicative greening pipelines (1)
Indicative greening pipelines (2)
Other Lower carbon transportation systems
Other low and zero- carbon emission technologies
Capacity building for climate policy development and implementation
Capacity building for GIS management
Conclusions and the way forward
Climate change is environmental and economic prerogative and a huge task of political engineering
GIS as an instrument for structural change to deliver deployment and scaling up of climate change mitigation technologies
In countries with limited possibilities of direct GHG reductions it is a leverage for low carbon economy
GIS brings co-benefits of mitigation and opens new business opportunities
GIS can be a testing ground for new generation of post-Kyoto flexible mechanisms: more programmatic lower transaction costs relying more on certified host country systems
Further information
Ministry of the Environment
Republic of Latvia
Phone: +371-7026 417
www.vidm.gov.lv